* A recent Scott Reeder column was discussed in a Senate Revenue Committee hearing yesterday. The column was about the owner of a small business that was allegedly run out of existence by the Illinois Department of Revenue. The column was headlined “Another small business closed by the Illinois Department of Revenue”…

For 10 days last month, a state auditor camped out at their store – sitting at one of those tiny little children’s tables – reviewing three months of receipts.

And that’s where the problem began.

You see, Ergadoo is the sort of business that has many nonprofits as customers – schools, churches, nurseries.

Those types of organizations don’t have to pay sales taxes.

So, teachers, church secretaries and principals often come in bearing letters from the Illinois Department of Revenue declaring their organizations’ sales tax exemptions.

Susan and her husband dutifully record the transaction – along with their tax exemption number.

Sounds good, right?

Well, no. The Revenue Department says that’s not good enough.

Clause said the Revenue Department told her it’s her store’s responsibility to determine where the customer’s money comes from.

“How am I supposed to prove if someone comes in with a $20 bill and a tax-exempt letter whether that money is from a school’s petty cash fund or someplace else? I can’t. No one can,” Susan said. […]

After examining three months of transactions such as these the auditor declared that the store owed $800 in back sales taxes.

“I told the auditor the state spent more to have you here for 10 days than it will end up collecting,” Susan said.

Then the other shoe dropped.

“We were told the state would plug the findings of the audit into some sort of formula and come up with a tax bill for the last three years. We’re guessing that will be about $8,000.”

After the salaries they drew from their business that is more than the store’s profits for the last two years.

* OK, first of all, small businesses like that one don’t really report “profits.” The money made is converted into salaries and other income, and then taxes are paid on personal income.

Also, check out a statement posted on the company’s Facebook page, which wasn’t so clear…

As many of you already know, in September of 2013, we opened Ergadoozy on the south end of our building. It has taken off with great success and for that we thank everyone who has come by and visited even once! We seem to be booked with parties ahead for 6 weeks and are starting to turn people away. So we are going to expand our play offerings at Ergadoozy come Spring of 2014.

Do to this, we need more room and the only place to get it is from the north end of the building, now housing Ergadoo;the educational supply and toy store. In order to make room for the Ergadoozy additions, we are now discounting the entire store of Ergadoo at 50% off. First come, first served. Anyone is welcome to shop and help clear out the space. […]

We were probably headed to this point eventually, but a recent sales tax audit by the Illinois Department of Revenue will severely change how we would have gone forward with doing business with tax exempt organizations. We would rather leave the marketplace with our good name than get caught up in the burdensome details of the state taxing system.

* It’s not good at all that IDoR was camped out at her store. And the decisions about whom to give the non-profit exemptions are, indeed, not so self-evident. A good CPA would’ve probably cleared all that up.

But, while IDoR’s allegedly excessive actions do make me quite uncomfortable, this store was going out of business anyway to make way for a new, more profitable concern. I don’t think we can directly blame the government for the closure.